What the gas industry wants from the budget

Anilesh S. Mahajan
January 31, 2013

Anilesh S. Mahajan

Players in the natural gas segment would like Finance Minister P. Chidambaram to realise that gas, whether locally produced or imported, can be a viable substitute for crude oil and key to accelerating India's growth rate. They are hoping for tax breaks in the coming budget, and in particular, parity in tax rates with crude oil.

With a transition to goods and services tax (GST) in the offing, these players - which include the oil marketing companies - want gas to be in the list of products covered by GST. But states, which earn a large chunk of their revenues from taxing oil and gas, do not want to lose exclusive taxation rights. The encouraging news is that Chidambaram too has been trying to convince states to allow oil and gas to be brought under GST.

India wants to reduce its dependence on oil by shifting further to gas. The petroleum ministry hopes to increase import capacity, currently at 12.5 metric tonne per annum (MPTA), including the newly commissioned Dabhol terminal with five MTPA capacity, by more than five times by 2016. Following the shale gas boom in the United States, there is a huge amount of gas available for sale in the international markets, and prices have also fallen from $16-$17 per unit to $9 to $11 for delivery on India's west coast.

The last budget provided tax exemption on gas to those power companies which imported it to fuel their own power terminals. But this was impractical. There are hardly any power companies in the country which have the facilities to import gas and use it. Gas importers want a blanket exemption for all of them, so that the benefit can be passed on to consumers across sectors, be they fertiliser companies, city gas networks or other industries.

City gas network also have to pay local taxes. Gas companies want a tax break to be given here as well, by categorising gas as 'declared goods' under the central sales tax act. 'Declared goods' are those of special importance in interstate trade and commerce. Other fuels such as crude oil, liquefied petroleum gas (LPG) and coal are already categorised as declared goods.

The last budget emphasised developing the national gas grid, but differences over taxes has made progress difficult. Thus pipeline network companies such as GAIL would like tax concession to lay cross-country pipelines. They point out that telecom equipment has been getting such a concession since 2002. They are keeping their fingers crossed, hoping the finance minister will listen to them.